Sunday, September 11, 2011

This is a quick impression from the opening remarks, on my second read of the PDF.

At the same time, many studies have found a strong relationship between long-run averages of money growth and inflation. This relationship seems to provide a straightforward strategy for maintaining low inflation—choose the growth rate of money that corresponds to the desired long-run rate of inflation. In fact, some economists have concluded from this evidence that the problem of controlling inflation has been successfully solved.2

Some economists conclude that the problem of inflation has been solved.

3 comments:

In other words, Lucas says "if you reduce the money supply, inflation will be low"

However, since there will not be enough money in the system, there will be unemployment, and people will go into debt in order to meet their needs. This will enrich those whose incomes are high enough to enable saving, and impoverish those whose incomes are too low to enable them to save. The richer you are, the more you can save and obtain rent on that saving. The result - a classic Pareto income/wealth distribution.

Another result of the necessity to generate more income - gambling behavior - lotteries for the poor, and the stock market and housing Ponzi schemes for those slightly higher on the income scale. The result - A classic Boltzmann-Gibbs income/wealth distribution. See - "Why it is hard to share the wealth"

Quote:The rich are getting richer while the poor remain poor. If you doubt it, ponder these numbers from the US, a country widely considered meritocratic, where talent and hard work are thought to be enough to propel anyone through the ranks of the rich. In 1979, the top 1% of the US population earned, on average, 33.1 times as much as the lowest 20%. In 2000, this multiplier had grown to 88.5. If inequality is growing in the US, what does this mean for other countries?

Almost certainly more of the same, if you believe physicists who are using new models based on simple physical laws to understand the distribution of wealth. Their studies indicate that inequality in market economies may be very hard to get rid of....

"In other words, Lucas says 'if you reduce the money supply, inflation will be low' However, since there will not be enough money in the system, there will be unemployment, and people will go into debt in order to meet their needs. This will enrich those whose incomes are high enough to enable saving..."

Clonal, nicely put. But why is it called "rent" rather than interest? Maybe (what many people (not me) say) there is productive debt and non-productive debt, and "interest" in the interest on productive debt, while "rent" is the interest on non-productive debt?